Western Firms’ China Hiring Practices Underscore Official Corruption

Recent emails obtained by federal regulators shed light on just how far JPMorgan Chase & Co. went to hire—and later, to retain—the son of a high-level Chinese minister.

Gao Jue, son of current Chinese Commerce Minister Gao Hucheng, was hired in 2007 at the investment banking division of JPMorgan’s China arm despite reservations from some bank employees, according to emails reviewed by the Wall Street Journal.

The decision to hire Gao was supported by William Daley, the emails suggested. Daley was a senior bank official at the time. He was also a former Commerce Secretary under President Clinton and the White House Chief of Staff under President Obama in 2011.

I do have a few cases where I think we can leverage the father’s connection.

— Internal JPMorgan email

Later, Gao was a candidate to be axed when firm-wide layoffs hit the company. But he appeared to have been spared after the Commerce Minister appealed to the bank.

“The father (Gao Hucheng) indicated to me repeatedly that he is willing to go extra miles to help JPM in whatever way we think he can,” wrote Fang Fang, who was chief executive of China investment banking at JPMorgan, in an email following a dinner with Gao Hucheng, according to the Journal report. “And I do have a few cases where I think we can leverage the father’s connection.”

It isn’t known whether the bank benefited from Gao Hucheng’s connections, but the emails suggest at least that was a potential motivation to keep the younger Gao employed there. Both Gao and Fang have since left the company.

Widespread Practice

In 2013, JPMorgan Chase disclosed that the U.S. Securities and Exchange Commission was probing the bank on its hiring practices in China.

At the core is whether the firm violated the Foreign Corrupt Practices Act (FCPA) of 1977, by hiring relatives of well-connected politicians in order to steer more business to the company. At the time, Bloomberg obtained an internal spreadsheet linking names of specific hires to relevant business transactions.

JPMorgan is far from the only international firm employing this strategy. Goldman Sachs Group Inc., Citigroup Inc., Morgan Stanley, Deutsche Bank AG, and Credit Suisse Goup AG all faced similar probes at one point regarding their hiring in China.

Risky Game with Shifting Rules

To be clear, this strategy employed by Western firms in China is different than the corporate corruption cases in most other instances.

Recent examples of violations of FCPA, such as the 2010 investigation of Hewlett-Packard’s bribery of a Russian official to win a supply contract, are usually isolated incidents involving a particular corrupt individual.

In this China case, Western firms of an entire industry are engaging in similar tactics, and the hirings involve relatives of government and state-owned-enterprise officials at many levels and in many geographical regions.

Putting possible FCPA violations aside, the fact that these firms all see a need for a “quid pro quo” strategy is a smoking gun indicator of the rampant corruption currently infecting China’s economy and business environment.

China’s perceived economic growth has been turbo-charged by excessive lending on public and private projects—projects requiring the blessing of regime officials who often hold the power in appointing underwriters and advisors. Likewise, the heads of state-owned companies are usually appointed by the Chinese Communist Party officials who often have sway over business decisions.

Western firms who hire the kin of such authority figures, presumably, have a higher chance of landing such deals.

But those benefits could be fleeting. As Epoch Times previously reported, Chinese Communist Party leader Xi Jinping has been dismantling the political network currently controlling China.

China’s Xinhua state news mouthpiece announced last year that “55 ‘Big Tigers'” were “purged.” That doesn’t include ongoing probes of executives at key state-owned enterprises such as Luo Weizhong of China National Offshore Oil Co., four top executives at China Southern Airlines Co., and a senior executive at China Petrochemical Corp., to name a few recent cases.

Such political volatility can prove treacherous for Western companies navigating China’s waters. Yesterday’s gain could very quickly turn into tomorrow’ nightmare.

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